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Home ownership is a serious commitment, whether you’re a first-time buyer or a seasoned pro. There’s a lot to think about before and after you purchase a home, and it’s crucial that buyers arm themselves with the best information available. For many Americans, the process begins with taking out a mortgage, because buying a home with straight cash is not always possible, nor is it the best financial decision. As of 2018, there was more than $15 trillion in mortgage debt in the United States, and more people are taking out mortgages every day to take advantage of currently low interest rates. Fortunately for today’s consumer, there are numerous ways to secure the right loan for their unique situation.
100% Financing
The bank will allow a purchaser of a primary residence to borrow up to 100% of the purchase price of a home at a maximum amount of $1,750,000 (soon to be increased to $2 million). The benefit of 100% financing is that it will help buyers who are income-rich and cash-poor become home owners. Closing costs, especially in New York State where I first established myself in the mortgage business, are high and can be as much as 3%-4% of the purchase price. Having enough cash saved for post-closing reserves as well as the down payment can be tough and the lack of these funds has kept many buyers — especially younger people — from pursuing home ownership. On the other hand, if you borrow 100%, you have no equity and if the market goes south, you can be underwater.
Jumbo Reverse Mortgages
Home owners can now obtain a reverse mortgage in New York and other states up to $4 million. Until recently, we were limited to loan limits of approximately $700,000. The increase in reverse loan limits is a huge benefit to senior home owners who live in high-value homes. With increased loan limits, senior home owners can potentially access hundreds of thousands of dollars more than previously allowed. Now, borrowers have the ability to tap into their home’s equity and put it to work any way they want, giving them more control over their assets, investments and cash flow. Proceeds are tax-free and no monthly mortgage payments are required. Funds can be used for any purpose, such as buying a second home or condo, paying for medical or in-home care expenses, paying for home improvements or limiting the need to take excessive distributions from their investment portfolio. No mortgage insurance is required.
Profit And Loss Statement Approval
This is a product where the bank will allow a borrower to present a year-to-date or year-end profit and loss statement as income verification. The lender will use the profit and loss statement instead of the prior year tax returns to determine loan eligibility. Essentially, this program allows a borrower to provide the real bottom line to the bank in order to determine income for approval purposes. This is especially helpful at this time of year when 2019 tax returns may not get filed until October 2020 and a borrower needs to use 2019 income to qualify. A bank will look at a projected profit and loss for 2020 if they have certainty about next month’s income. The bank will also look for several months of bank statements to back up the gross income on the profit and loss statements.
Bank Statement Programs
This product allows the bank to determine loan eligibility based on a percentage of the gross amount of deposits into a borrower’s business or personal bank account. The bank will take the total of the 12 months and pull out a percentage for expenses and use the balance as income to qualify. Bank statement programs are especially helpful for those people who earn income in uneven amounts throughout the year, such as independent contractors or small business owners. With the bank statement program, it’s possible to get as much as 90% financing.
The lending products mentioned are just some of the ways borrowers can tap into financing on the path to home ownership. I advise everyone to consult a mortgage specialist to make sure they are securing the best loans at the best rates with respect to their income level and state; it’s never too early to start looking into purchase options.